Only in Pakistan: Telcos Deduct 8% or Equal to Half the Amount of Taxes As Service Charges

Telcos Deduct 8% or Half the Amount of Taxes As Service ChargesComplaintive, dissatisfied and apparently hardly burdened telecom companies deduct 8 percent of customers’ money as service charge.

This flat charge of 8 percent against any money that mobile customers load into their mobile accounts go straight to the cellular companies’ pockets.

Interestingly, these service charges are not charged against any service, airtime or value addition, instead these charges are deducted as a royalty, line rent, tax, extortion or call it whatever you like.

History of service charges in Pakistan dates back to 2008 when Telenor became the first operator to impost 5 percent service charges on all reloads. All other operators followed Telenor, however, they named these charges differently. Here are some of the names that operators used to deduct service charges or company tax:

  • Operational Fee
  • Service Charges
  • Maintenance Fee
  • Admin fee
  • Service fee
  • Operational Charges
  • Maintenance Charges
  • and whatever

Cellular companies kept increasing these charges, at a different rate, and are now finally charging 8 percent of all amounts.

Taxes on Telecom Services

  • 19.5 Percent FED
  • 15 Percent WHT

Now if you are a taxpayer (which most of us aren’t) then you can claim a refund – if applicable – against the WHT that you pay for telecom services. For example, if your monthly usage for mobile service is Rs. 1,000 or Rs. 12,000 per year then you can get a refund of Rs. 1,800 or 15 percent of the total spending.

However, most of Pakistani don’t pay tax or they aren’t registered as tax payers and hence WHT is deducted forever without any chances for a refund.

Technically speaking, 19.5 percent FED is the only true tax that goes to government and is non-refundable. And so are the service charges, which are 8 percent of total reloads.

Taxes + Service Charges on Telecom Services

  • 19.5 Percent FED
  • 15 Percent WHT
  • 8 Percent Service Charges
  • Total: 42.5 percent

In order words, almost Rs. 42.5 are deducted against a card load of Rs. 100. But technically, Rs. 15 can be refunded, while Rs. 8 go to telecom operators against no services.

Why Service Charges?

Telecom operators argue that increased inflation, devaluating Pakistani currency, energy crisis, low ARPUs and low tariffs are the reasons behind these service charges. However, they fail to explain that why such service charges are unique to Pakistani market only when all these factors are being faced by several other regional markets (including Africa).

Telecom companies also fail to explain that why did they give up to competition and price war this much that their ARPUs have gone rock bottom.

Just if you don’t remember, very same telecom companies — that deduct 8 percent service charges — complain about high taxes and argue that higher tax deductions are hampering their growth, burdening the customers, lowering the revenues and so on.

While we don’t deny the fact that taxes on telecom services in Pakistan are second highest in the world, but it is interesting to note that service charges are technically equivalent to half of the taxes on telecom services, making the situation worse for consumers.

Telecom companies should not pretend and must not shout against tax hike, as this is the result of compromise they have made with the government against a free-hand from regulator and government to impose service charges as they like.

Its not the telecom companies that are going to suffer, instead its the customer who will have to bear the brunt. And this is why telecom companies won’t take a stand against increasing taxes.

Tech reporter with over 10 years of experience, founder of ProPakistani.PK

  • 15% WHT also goes in the Govt. kitty whether the subscriber claims for the adjustment in the annual tax return or not.

      • Comon Don’t be stupid. WHT is like a Bhata Tax. you can’t reclaim it unless you’ve NTN or a govt employ, as this tax is supposed to be for these employes whose salaries are over 400,000 free tax limit.

        But I afraid Mr. Dar now wants to impose it on everyone just like a regular tax.
        In other words, basically we’re paying 32% tax (17% + 15%) on most products and services regardless of our income limit.
        If you don’t believe then just try it. Reclaim your WHT tax and we’ll believe that it’s refundable for everyone.

        • I don’t think WHT is refundable. What I know is refundable is just INCOME TAX and SALES TAX.
          May be anyone can enlighten true info here…

            • If you are registered sales tax payer, buy anything from registered sales tax sellers, then you can claim and get it refunded! Refund of tax claim is for only those who are registered tax payers.

              • Have you ever in your life refunded your sales tax ???? Are you joking or deliberately misguiding people here !!!! I have refunded my WHT many a times on mobile phone bills and annual car token, so its WHT which can always be refunded not Sales Tax.

                • Your statement gets multiplied by 0 and answer is a BIG ZERO of your information.
                  Consult with any sales tax expert or practitioner, you will know SO MIND IT- it’s SALES TAX WHICH GETS REFUNDED AGAINST PURCHASES FROM REGISTERED SELLERS BY REGISTERED PURCHASERS.
                  => REGISTERED means, individual or company who is registered under sales tax and is liable to pay! If you are student or younger kiddie- you can’t dream of getting sales tax refund.

              • Please consult with resources before commenting- Sales tax is always refundable or adjustable but only to those who are registered sales tax payers and buy products or service from registered sales tax payers.May be I am talking in broader sense and people here are only concerned with younger kiddies who are using mobiles??

            • There is difference, I think WHT is deducted at source while Income tax is in pretty other way-paid annually after filing return each year.

      • hehehe, don’t post comment with fake tukka info, if you know NOTHING about anything. Your knowledge or info about TAX is a big ZERO.
        Don’t get offended, but don’t try to be a teacher while you don’t even know ABC….

        • From the misinformation which you are spreading here on this post it seems that your info about TAX regulations of Pkaistan is big zero. Better have a look in your own collar before pointning fingers at others.

          • Hey, come to senses! Read my comment carefully. ONLY REGISTERED SALES TAX PAYERS CAN GET SALES TAX REFUNDED AGAINST PURCHASES FROM REGISTERED SALES TAX SELLERS. So, read any thing 10 times if you can’t understand it in one go before pointing others! I have much better knowledge than you on this matter, i don’t use tukkas. so don’t be like one line follower, use common sense or study ;)

  • agar mobile companyin ko waqai lagta hay kay itna ziada tax customers kay liye mushqil hay tu woh service charges kyun khatam nai ker detey? apney greban main tu dekhtay nahi key ketna loot rehay hey

  • Mr. Aamir, Kindly check this info again. As per my knowledge Service Charges of Telenor & Ufone are increased to 10% from July 2nd & July 1 2013. Received SMS from both telcos. Also conformed from recharged amount, Telenor will give Rs75 balance on Rs100 load, 15% WHT & 10% Service Charge(25 total).
    See this from Telenor notice on website
    *From 2nd July 2013, prepaid service fee on recharge would be increased by 3%.*
    Also the Call, SMS and Other VAS service charges are increasing day by day, example is here
    MMS charges will be revised from 18th July 2013 by Telenor.

    Dear customer,
    This is to inform you that effective 18th July the revised MMS charges will be
    Local MMS : Rs.6
    International MMS : Rs.17.99
    So ready for more in future……………

  • sorry this is wrong information. Please write service charges telecom operators in google. I have lived in america and the same is being done by at&t in America. Wrong information. Also many countries dont face energy crisis and inflation at the speed of light

  • I lived so long in Saudia & Emirates. Zero service charge and after every call you get your balance info at no charge.Same Itesalat is operating U fone but in Pakistan, no regulations, no control. Looto bhai looto sarfeen ko.In this country no body cares for them. at least they can blog through your web site.

  • Well…. to give a fact…. Telcos are also taking the hit of Activation tax of Rs. 250 per SIM activation for every subscriber, which is non-adjustable. The mentioned activation tax is an added cost to the Company for any SIM purchased by the subscriber. If the tax discussion herein is considered true, then the activation tax should be billed to the subscriber by the Telcos.

  • i am sorry to say your calculation is wrong.because FED (19.5%) is the 19.5 of of 8% (mean 19.5% of Service Charges whic is 8% )

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